Here's The State Of The World Economy

Today is the perfect day to step back and take a big picture look at the world economy.

For one thing, it's Labor Day in the US, so it's a natural time to gain perspective. It's also, fortuitously, PMI Day in the rest of the world, so we have a lot of fresh economic data.

So let's hit on the big themes.

1) Europe is coming back.

We've been writing about this since early in the summer, but the latest data makes it clear that across the Eurozone, a comeback is happening.

Both Spanish and Italian PMIs had their best months since Spring 2011. Germany remains solid. And even Greece (!) is surging back. It's nearly back to growth.

This table from Markit nicely tells the whole story in the Eurozone.

And it's not just the Eurozone.

UK data has been solid lately, and Eastern European numbers are looking very strong.

Here for example is the Czech Republic (Poland looks similar).

Europe is not "out of the woods" or anything. But the numbers are going in the right direction, which makes everything from debt to politics a lot smoother.

2) China is not crashing

For years, China has been in a a Schrödinger's Hard Landing. Some people are convinced that it's all falling apart. Others insist that things are just fine, or maybe slowing a tad.

Earlier this year there was serious concern about a hard China fall, but the recent data has eased those concerns somewhat.

Again going to the latest PMI data, it looks like things are doing fine. Growth isn't at its most spectacular levels, but the situation is not deteriorating too hard, and the numbers right now are a tad better than expected.

Anyway, the more important story in China seems to be the government's eagerness to see "quality" growth (i.e. growth that's not just driven by aggressive investment), and also a push to reform and crack down on corruption, which we're seeing in the newsflow coming out of the country. So China might not be the voracious consumer of the world's commodities quite the way it used to be, but a full-on meltdown in the world's most populous country doesn't seem that likely either.

3) Emerging Pain

Outside of China, it's clear that several of the world's formerly red-hot emerging markets are experiencing serious pain.

Indonesia and India are the pits, as both are seeing deteriorating economic data, a rush of outflows, diving currencies, diving stock markets, inflation, and all that stuff. What's causing the weakness? Part of the issue is being ascribed to the rise in US interest rates causing dollar strength and a reversal of hot-month investment inflows. Strong inflows in earlier years had helped paper over, it's argued, structural flaws in the economy, that now need to be addressed.

Just today, both clocked in with some ugly numbers. India had its worst PMI Manufacturing report in years, and Indonesia whiffed on a trade number. The Jakarta Market fell 2.6%. The question is not whether the scene is bad, but whether things develop into a real "crisis." So far, the thinking seems to be that this doesn't have to be an actual crisis-crisis, a la the late 90s.

4) The US: A little better than same-old, same old

Better-than-expected growth is right around the corner in the US... of course we've been saying that for like 3 years now. But now, maybe this time it's real. Maybe? Possibly?

Economic data in 2013 is a bit stronger, and seems more durable than at any time since the crisis. The labor market continues to improve, and the strength of the housing market is well known. But none of it is that good, especially on the labor front, and lately some of the housing data has been mediocre (though actual prices are quite robust).

Once again, goings on in Washington appear likely to be unhelpful. The coming September chaos (Fed nomination, Fed tapering, budget debates, and debt ceiling) are very well known. Once again, it seems like we can't get out of our own way:

5) Some other themes

• Syria. We're now in a weird holding pattern, and shaping up for one of the biggest votes in Washington DC since TARP.
• Oil is on the rise.
• Japan seems to be doing okay, though things have quieted down quite a bit.
• Iraq: A mess again.

So there's your state of the world: Europe back on the rise, China doing okay, the emerging world ugly, the US doing better, but still a perennial disappointment, and a slew of new global geopolitical issues hanging over everything.